Political leaders have been debating for months over how to deal with the banking-induced financial crisis currently seizing the world, but controversy over banking is nothing new. Wisconsin’s history demonstrates this vividly. In 1846, as Wisconsin was preparing for statehood, a political convention met in Madison to author the state constitution. The draft this convention created never took effect—citizens overwhelmingly rejected it in an 1847 referendum, and statehood was delayed until a second constitution was approved the next year. The first proposal, voters thought, was simply too radical. Two of its radical provisions dealt with debt and banking.

Banking provisions in the rejected 1846 Wisconsin Constitution. (Digitized by the Wisconsin Historical Society)

One section of the rejected constitution, the Homestead Provision, was designed to protect family homes from being seized to cover debt. An even more radical proposal, Article 10, actually banned any bank from doing business within Wisconsin’s borders.

The Homestead Provision, based on provisions in the earlier Texas Constitution, would have exempted the family home and forty acres, to a maximum value of one thousand dollars (then a substantial sum), from being seized to repay contractual debts. The second constitution replaced this with a more vague statement exempting only “a reasonable amount of property” from seizure. Currently, Wisconsin law provides an exemption for property worth up to $40,000, but it does not apply to mortgages or debts incurred to purchase or improve the home.

The idea to forbid banking in Wisconsin was proposed by Edward G. Ryan, a Democrat elected to the constitutional convention from Racine. The convention approved his proposal by a 79-27 vote, and the article they passed read like this:

Article X: On Banks and Banking

Section I: There shall be no bank of issue within this state.

Section II: The legislature shall not have power to authorize or incorporate, by any general or special law, any bank or other institution having any banking power or privilege, or to confer upon any corporation, institution, person or persons any banking power or privilege.

Section III: It shall not be lawful for any corporation, institution, person or persons within this state, under any pretense or authority, to make or issue any paper money, note, bill, certificate, or other evidence of debt whatever intended to circulate as money.

Section IV: It shall not be lawful for any corporation within this state under any pretense or authority, to exercise the business of receiving deposits of money, making discounts, or buying or selling bills of exchange, or to do any other banking business whatever.

Section V: No branch or agency of any bank or banking institution of the United States, or of any State or Territory within or without the United States shall be established or maintained within this state.

Section VI: It shall not be lawful to circulate within this state, after the year one thousand eight hundred and forty seven, any paper money, note, bill, certificate or other evidence of debt whatever intended to circulate as money, issued without this state, of any denomination less than ten dollars, or after the year one thousand eight hundred and forty nine, of any denomination less than twenty dollars.

Section VII: The legislature shall, at its first session after the adoption of this constitution, and from time to time thereafter as may be necessary, enact adequate penalties for the punishment of all violations and evasions of the provisions of this article.¹

Wisconsin’s politicians were willing to ban banking because they had lived through decades of bank-related economic turmoil. In 1816, the U.S. Congress had delegated management of federal finance to a private corporation, the Second Bank of the United States, but in 1819 and 1834, the bank’s policies were blamed for causing recessions. The congressional charter for the bank expired in 1836, but in its stead, unregulated “wildcat banks” began offering easy loans and printing money, as was legal at the time. Eager for profit, the banks expanded rapidly, making too much money available far too quickly. The resulting inflation triggered a depression that lasted from 1837 to 1843, unparalleled in severity until the Great Depression. When Wisconsin’s founding politicians met to write the constitution in 1846, these events were still fresh in mind.

Delegates at the constitutional convention were also concerned about the influence banks could have over Wisconsin’s legislature. Edward Ryan, who had introduced the bank article, hoped the constitution would also specify penalties for those who ignored the ban, fearful that unless the penalties were embedded in the constitution, banks would influence the legislature to change them. Defending his points at the convention, Ryan explained:

I hope this convention has a decided majority of “hards”—of men who are opposed to all banks, banking, and bank paper. But who can tell when there will be a “soft” legislature? Let a “soft” legislature come into power, and the penalties will at once be put down so that it will be for the interest of any corporation to pay the fine for the sake of the money they can make. The law will be as “soft” as it is now, when any company may be ready and willing to pay $1000 a year for the privilege. Leave the question open, and the halls of legislation will be beset with “softs” asking for privileges, bitterly complaining that high penalties cannot be paid, as the business of banking is not as good “as it used to was.” Give us low penalties, and we will pay them. I would place these restraints, limits, and penalties where the “softs” cannot reach or reduce them. I fear the “softs.” They cannot be killed. The hundred heads of the hydra might be lopped off, but the “softs” have no heads. They spring up on every hand; they sway and govern legislatures. Look at the new states—democratic, “hard,” as are the body of the people; see how the “softs” have carried all their measures and involved the people. Let it not be so in Wisconsin. Place the penalty where the “softs” cannot reach it. Before I will consent to have the penalty reduced, I will vote to increase it. I belong to that party which would give to banking no quarter.²

Despite Ryan’s argument, the convention did grant the legislature power to set penalties for offenses against the bank ban, but it didn’t matter. The proposed constitution was ultimately rejected by the public, 20,333 to 14,119. When the second constitution was drafted, the banking article was replaced with a section leaving the matter up to future referendums.

Notably, the anti-banking measures were not the only radical provisions in the 1846 Wisconsin Constitution. The document also offered generous rights to immigrants, gave married women the right to own property independently of their husbands, and called for a referendum to decide whether African Americans would be given the right to vote. All of these issues were controversial, but while rejected by a majority in the 1840s, these ideas would eventually gain support and take effect.

What about banking? In light of today’s financial crisis, it is easy to wonder whether Ryan and his supporters in 1846 were onto something. The notion that banking should be entirely banned seems ridiculous — banking and even debt are essential to the function of modern society. Even so, it seems that Wisconsin’s early politicians had good reason to worry about banks and their abuses. Unlike many, they were willing to experiment with radical ideas to address the issue. Perhaps politicians today would do well to take a similar mindset. Change and improvement are only possible when radical ideas are admitted into public debate.

Notes:

1. The Rejected Constitution of the State of Wisconsin,1846. The original manuscript is viewable online at the Wisconsin Historical Society. A transcription is available from Wikisource.
2. Quoted in Quaife, Milo. The Convention of 1846. (Madison: State Historical Society of Wisconsin, 1919).